Recovery Cockroaches

Recovery Cockroaches

Postby DDEATH » Wed May 04, 2016 4:45 am

Recovery Cockroaches
Paul Krugman
May 3, 2016 6:46 am

Many years ago a long-time policy wonk gave me a very useful metaphor. Bad ideas, he explained, are like cockroaches: no matter how many times you flush them down the toilet, they just keep coming back.

And I guess this is always true. Still, economic debate since the 2008 crisis has seemed unusually cockroach-infested: bad arguments just keep coming back, no matter how totally they have been refuted by evidence.

Jonathan Chait finds Kevin Williamson of National Review reviving, for the umpteenth time, the claim that Obama is an economic failure — despite a record of job creation much better than that of his predecessor, or of any other major advanced country — because we didn’t have a rapid, V-shaped recovery from the 2007-2009 slump.

The key point here is that the sluggish recovery wasn’t a surprise. Chait stresses the Reinhart-Rogoff analysis of the aftermath of financial crises, which was certainly influential, but actually concerns about weak recovery were what a lot of people were predicting in advance — yes, including me.

The key point was that we had suffered from a postmodern recession. Unlike, say, the double-dip recession of 1979-1982, brought on by interest rate hikes to fight inflation, 2007-9 was brought on by private sector overreach: interest rates weren’t very high to begin with, and even cutting them to zero wasn’t enough to offset the downdraft from the housing bust and the banking crisis. So the normal recession-fighting weapons ran out of ammunition. Sustained fiscal stimulus could have led to a better recovery, but it didn’t happen: the Recovery Act was both too small and too short-lived, again something many of us predicted in advance.

But the larger point is that we’ve been through all of this repeatedly. The debate over the causes of sluggish recovery is part of the broader debate about economic models — in which one side predicted runaway inflation and soaring interest rates, while the other, using the same general approach that predicted sluggish recovery, predicted quiescent inflation and rates. Rarely in the history of economics has one side of a debate been so completely vindicated, and the other so completely discredited by events.

And yet the same old arguments just keep being trotted out, with no acknowledgment that we’ve had this debate before. Will nobody send this stuff to the roach motel, where it belongs?
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